December 1, 2013 — Tourist Kyle Hicks (left) and Brianna Bentley, visiting from Nashville, walk out of AutoZone park after taking pictures by the massive Christmas tree in the entrance on a quiet Sunday morning at the ballpark. Details have emerged about the deal that will have the city purchase the stadium and the St. Louis Cardinals purchase the Redbirds team. (Mike Brown/The Commercial Appeal)

The Commercial Appeal

The city of Memphis is going to Wall Street to borrow money to buy AutoZone Park, while financial rating agency Moody's Investors Service is raising concerns about the city's debt levels.

The Memphis City Council is scheduled to vote on the proposed purchase of the minor league baseball stadium Monday.

Moody's changed its outlook for the city's general obligation debt from "stable" to "negative" and issued a negative outlook for the AutoZone park debt. The agency also issued a negative outlook on bonds issued in 2011 to fund the redevelopment Downtown of the Pyramid and the Pinch District.

The agency's underlying ratings for Memphis debt remain strong, but the negative outlook signals that Moody's might lower the ratings in the future. The lower the rating, the greater the perceived risk that the city would default. Higher risk usually means investors demand a higher interest rate, and the city would have to pay more to borrow.

"Moody's expects that the city's financial position will remain challenged over the near-term as management begins to increase funding to pensions, while other fixed costs such as debt service and (health care for retirees), remain sizable," analysts wrote.

"Over the next 12 to 24 months, we're going to be watching it," Moody's spokesman David Jacobson said.

The agency still gave the proposed stadium bonds a strong Aa3 rating, which Jacobson described as the fourth-highest of 21 possible ratings. (The best is Aaa, followed by Aa1, Aa2 and Aa3.)

The agency gave a rating of Aa2 to the city's general obligation bonds, which are backed by the government's full taxing authority.

"The key thing is that the bond rating was not lowered," said Memphis Mayor A C Wharton. "Aa2, there are cities and towns that would give an arm and a leg to have that. We want to make it higher. We definitely are going to get the outlook changed as we stay on course with respect to our pension challenge that we're working on right now."

He said the administration plans to bring recommendations for changing the pension system to the council this month.

The city's experts concluded that as of July 1, the government would owe $682 million more to retirees than it held in its trust fund. The Memphis Fire Fighters Association hired an expert who used different assumptions and concluded the shortfall was $301 million.

The city's proposal to take over AutoZone Park calls for the nonprofit Memphis Center City Revenue Finance Corp. to issue an estimated $20 million in bonds to buy the park and around $5 million to improve it. The St. Louis Cardinals would take over the financially troubled Memphis Redbirds team.

The new bond debt would be paid off by rent from the Cardinals, payments in lieu of taxes from the nearby Moore Building and parking garage, and sales taxes from items sold at the stadium. Bond documents say the city would contribute to debt service from non-property tax sources, such as sales taxes and licensing fees. How much the city would contribute is unclear.

Despite the other sources of money, the rating agency concludes that the city of Memphis is the ultimate backer of the bonds and that the streams of tax dollars that it's borrowing against, including local sales taxes, are already under pressure because of other debts. Assuming the stadium bonds are issued, the city will be using its non-property tax income to leverage $296.8 million in debt, Moody's wrote.

The reports were released on Monday, one day before the mayor's administration went to the City Council and asked for immediate approval of the deal. Each council member received a stack of densely worded legal documents roughly the size of a phone book, and several complained that they'd had no time to read the paperwork.

Project backers raised the fear that the New York firm Fundamental Advisors might foreclose on AutoZone Park if the transaction isn't complete by Dec. 31. The firm currently holds the bonds issued years ago to pay for construction of the stadium.

Despite the pressure, the City Council members delayed a vote for several days. They're scheduled to reconvene at 7 p.m. Monday at City Hall.

The AutoZone Park deal is one of many led by Robert Lipscomb, director of the city's Housing and Community Development Division. He has played so central a role that the city's chief financial officer, Brian Collins, declined to answer questions about the stadium bonds, saying that Lipscomb is handling the transaction. "I'm really uncomfortable talking about it because he knows it so much better," Collins said.

Efforts to reach Lipscomb Thursday and Friday were unsuccessful.

Lipscomb was also the point person on another high-profile project that went before the City Council Tuesday: redevelopment of the old Sears Crosstown building into a vertical urban village. Lipscomb said his team had worked out key details of the city's $15 million financing package the night before.

Some council members complain that amid the city's financial problems, the mayor's administration is asking them to approve expensive projects one at a time, with little thought to strategy.

"It just appears that we're all over the place. What is the plan?" council member Wanda Halbert asked Wharton in Tuesday's meeting. "And how do we connect the dots to all these different projects and programs?"

Wharton said Friday that the administration is wrapping up a five-year strategic plan and intends to present it to the City Council in January.

"And part of that will be a growth plan that shows how everything fits in."

Another bond rating agency, Standard & Poor's, was expected to release reports on Memphis debt soon, but the documents were not complete Friday, a representative of the agency said.